One more sign that the economy is stabilizing: nearly one-third of asset-based lenders, which includes banks and other commercial lenders, reported an increase in new credit commitments during the first quarter of 2010. That's according to the Quarterly Asset-Based Lending Index compiled by the Commercial Finance Association (CFA). What's more, respondents also reported a slight decrease in write-offs and non-accruing loans, along with a small jump in credit line utilization, says Andrej Suskavcevic, chief executive officer with the CFA. "We're seeing across the board greater volume and better quality deals," Suskavcevic says. As their name suggests, asset-based loans are loans that are backed by the borrower's assets, such as accounts receivable, inventory or equipment.
That's not to say that asset-based loan market is immune to forces in the larger economy. At the end of 2009, asset-based loans outstanding totaled $480 billion, a drop of almost 20 percent from 2008's high of $590 billion, and the lowest level since 2005, also according to the CFA.
Even so, the trend is positive, and mirrors similar stabilization in the asset-backed securities market. In the first quarter of 2010, the issuance of asset-backed securities other than mortgages topped $30 billion, nearly double the volume of a year earlier, reports the Securities Industry and Financial Markets Association (SIFMA). Similarly, more than $1.9 trillion in mortgage-related securities were issued in 2009, up from $1.3 trillion in 2008, also according to SIFMA.
However, it's important to point out the role that government agency-backed securities have played in the growth of the MBS market. In fact, they accounted for nearly all - 98 percent - of the issuances in 2009. In contrast, as recently as 2007, agency-backed securities made up about 64 percent of the market, SIFMA reports.
The asset-based lending market has lacked such government support. Instead, its fortunes rise when traditional bank lending - that is, cash flow lending - becomes more difficult. "If lending requirements remain tight, we'll still see a good amount of asset-based lending," Suskavcevic notes. At the same time, awareness of this type of financing has grown over the past few years. That may mean that asset-based loans will continue be seen as a viable option, even if cash-based bank lending loosens as the economy continues to recover.